Understanding Severance: What You Need to Know

Define severance as a term that refers to the compensation and benefits an employee receives when their employment is terminated involuntarily. When facing job loss, understanding severance is crucial for your financial stability and future planning.

"Severance pay is often granted to employees upon termination of employment." - U.S. Department of Labor

Here's what severance typically means in an employment context:

Aspect	Definition
Basic Definition	The ending of an employment relationship accompanied by compensation
Legal Context	Payment and benefits provided when employment ends through no fault of the employee
Common Formula	1-2 weeks of pay for each year of service with the company
Legal Requirement	Not required by federal law (FLSA) but may be mandated by state laws, contracts, or company policies
Purpose	To provide financial support during transition to new employment

Severance often serves as a bridge between jobs, helping employees maintain financial stability while searching for new opportunities. While not legally required in most cases, many companies offer severance packages as a standard practice during layoffs, restructuring, or other involuntary terminations.

I'm Nick Norris, a partner with Watson & Norris, PLLC, with over 20 years of experience representing employees in cases where I've had to define severance rights and negotiate fair termination packages across Mississippi. Having litigated more than 1,000 employment cases, I understand the critical importance of securing proper compensation when leaving a job.

What Does "Define Severance" Mean?

When we talk about define severance at its core, we're referring to a clean break or separation. The term has roots in Latin—"separare" meaning "to separate"—which perfectly captures its essence: the division of something once whole into distinct parts. In legal settings, this concept takes on specific meanings that affect how employment relationships end.

Core Definition: Define Severance in Everyday Language

In our day-to-day lives, to define severance simply means ending a connection. Think about those difficult moments when relationships change permanently:

The painful severance between close friends after a misunderstanding. The formal breaking of business partnerships. Even the emotional toll when family members stop speaking to each other.

I've seen clients struggle with the emotional aspects of employment severance beyond just the paperwork. As one client poignantly shared, "The hardest part wasn't losing my paycheck—it was the sudden severance from colleagues who felt like family after fifteen years."

This captures something important: severance isn't just about cutting ties—it's about the emotional journey that follows when something familiar ends.

Legal Lens: Define Severance in Employment Contracts

When we define severance in employment law—my area of expertise for over two decades—the term takes on more precise meaning. Here, severance encompasses:

The formal ending of the employer-employee relationship, and importantly, the financial package provided to ease that transition.

I recently worked with a client who told me, "In September, I'll receive a severance of 16 weeks' pay, which should carry me through the New Year." This real-world example highlights how severance becomes a financial bridge between jobs.

In legal documents, severance can also refer to splitting joint estates or contracts into separate parts. This concept appears in the WARN Act, which requires certain employers to provide advance notice of qualifying plant closings and mass layoffs, often triggering severance obligations.

Understanding how to properly define severance in your specific situation is the first step toward ensuring you receive fair treatment during a job transition—something we help employees across Mississippi steer every day.

When Is Severance Offered and Is It Required by Law?

Many people assume that employers must provide severance pay when they let you go. The reality is a bit more complicated.

"No state or federal law, including the Fair Labor Standards Act (FLSA), requires a company to offer termination benefits to former employees."

Despite not being legally required in most cases, severance packages are actually quite common in American workplaces. Research shows that about 88% of U.S. companies offered some form of termination benefits as of 2018. Most employers view severance as a good business practice rather than a legal obligation.

You'll typically see severance offered when:

Your company is downsizing or conducting mass layoffs. Your position gets eliminated during restructuring. After a merger or acquisition creates duplicate roles. When executives or senior employees are asked to leave. As part of early retirement incentive programs.

U.S. Regulations & State Exceptions

While federal law doesn't generally mandate severance pay, there are important regulations that affect how companies handle terminations:

The Worker Adjustment and Retraining Notification (WARN) Act steps in when larger companies (100+ employees) conduct mass layoffs. This federal law requires at least 60 days' advance notice before significant job cuts. Though WARN doesn't directly require severance, many employers offer it when they fail to provide the required notice period.

Learn more about WARN Act requirements

Some states have created stronger protections for workers. New Jersey made headlines in March 2023 by becoming the first state to actually mandate severance pay for mass layoffs. Their groundbreaking law requires 90 days' notice (longer than federal rules) and one week of severance pay for each year of employment when companies with 100+ employees lay off 50 or more workers.

Here in Mississippi, where Watson & Norris, PLLC practices, we don't have state-specific laws requiring severance beyond federal standards. This makes understanding your employment contract and company policies especially important if you're facing job loss in our state.

Components & Calculation: Building a Typical Severance Package

When we define severance packages, they're much more than just a goodbye check. Think of them as financial bridge that helps you cross from one job to the next without falling into a money pit along the way.

Formula Basics

Most companies calculate severance using a straightforward approach:

1-2 weeks of pay × number of years employed at the company

Let me put this in real terms. If you've dedicated eight years to a company and earn $1,200 weekly, your severance might look like $1,200 × 2 weeks × 8 years = $19,200. Not too shabby for a financial cushion!

But here's where things get interesting. This formula isn't set in stone. Your severance can vary widely depending on your industry, the company's financial health, your position, and—perhaps most importantly—your negotiation skills. Some companies might offer a flat three months regardless of how long you've been there, while others increase the rate for loyal long-timers.

How you receive your money matters too. Some companies hand over the entire amount at once (a lump sum payment), while others keep you on the payroll, sending regular checks until the severance runs out (salary continuation). Each approach affects your taxes and unemployment benefits differently—something we'll dive into later.

"If they offer you a severance package, take the money and run." - New York Times quote

Extra Perks Beyond Cash

The best severance packages include valuable benefits beyond just money. Think of these as the hidden gems in your severance treasure chest:

Your unused vacation time often converts to cash in your final package. Those two weeks you never took last summer? They might show up in your severance check.

Healthcare benefits can be a lifesaver—literally. Many packages include continued health insurance, either through COBRA coverage (typically lasting up to 18 months) or through employer subsidies that help cover those often steep COBRA premiums.

Your retirement benefits matter too. Some employers might accelerate vesting schedules or make special provisions for your 401(k) matches that haven't fully vested yet.

Many companies also throw in outplacement services—career counseling, resume help, and job search support that can make finding your next position much easier. And don't forget about equity considerations if you have stock options, or agreements about references for future employers.

Here's how severance pay differs from your regular paycheck:

Severance Pay	Regular Wages
Compensation for job loss	Payment for work performed
Often calculated based on tenure	Based on hours worked or salary agreement
May be paid as lump sum	Paid on regular schedule
May have special tax treatment	Subject to standard payroll taxes
Often comes with conditions (like signing a release)	Legally required payment for work done
Discretionary in most cases	Legally mandated

The absence of severance can be devastating. During COVID-19 layoffs, one fashion industry example from The New York Times showed how painful this can be: "Ms. von Furstenberg had to lay off 60 percent of the corporate and retail staff in the U.S., Britain and France, and close 18 of her 19 U.S. stores — as employees were let go without severance and creditors howled."

When faced with job loss, having that financial bridge can make all the difference between panic and peace of mind as you plan your next career move.

Tax & Unemployment: What Happens After the Check Arrives?

Let's talk about what happens after your severance check lands in your account. While it might feel like a windfall at first, understanding the financial aftermath is crucial for your peace of mind and budget planning.

Is Severance Pay Taxable?

Yes, Uncle Sam definitely wants his share of your severance package. When we define severance from a tax perspective, it's considered taxable income—just like your regular paycheck was.

Your severance will be subject to federal income tax in the year you receive it. This might seem obvious, but it catches many people by surprise, especially when they see how much is withheld from their payment. State and local taxes will also take their bite, though these rates vary depending on where you live.

Don't forget about FICA taxes either—both Social Security and Medicare taxes still apply to severance. Your employer might handle the withholding in one of two ways: either as regular wages (using your existing W-4 instructions) or as "supplemental wages," which often means a flat 22% federal withholding rate.

Here's something to consider: a large lump-sum payment could potentially push you into a higher tax bracket for the year. I've had clients who were surprised when their tax bill came due because they hadn't planned for this bump in income.

If you're still in negotiations, you might want to discuss splitting your severance across tax years. I once worked with a client who received half her severance in December and half in January, which helped her manage her tax liability more effectively.

How Severance Impacts Unemployment Eligibility

This is where things get a bit tricky, and frankly, a bit frustrating. The relationship between your severance and unemployment benefits isn't straightforward, and it varies by state.

Some states will make you wait until your severance period is "over" before you can collect unemployment benefits. They essentially treat your severance as if you're still receiving regular wages. Other states are more generous and allow you to collect unemployment while receiving severance.

How your severance is structured matters too. If you receive a lump sum payment, it might be treated differently than if you're getting regular payments through salary continuation.

Here in Mississippi, where we practice at Watson & Norris, PLLC, your severance can affect your unemployment benefits depending on its structure. This is one of those details that's worth discussing with an employment attorney before signing anything.

I remember working with a client who negotiated to receive her severance as a lump sum specifically because our state would have delayed her unemployment benefits during a salary continuation period. She was able to start collecting unemployment right away while also having her severance money in the bank—a much better financial position during her job search.

As one financial advisor cleverly put it: "Timing severance pay to follow expiration of unemployment benefits can maximize overall benefits." It's this kind of strategic planning that can make a significant difference in your financial stability while you're between jobs.

The goal is to create a smooth financial bridge to your next opportunity—and understanding these tax and unemployment considerations is an essential part of building that bridge.

Negotiating & Protecting Your Rights Before You Sign

When you receive a severance offer, it's often negotiable. Before signing anything, it's important to understand what you're agreeing to and whether you could secure better terms.

"When severance plans are offered, hucksters come running, pitching everything from financial products to fast-food franchises." - Huffington Post

This quote highlights why it's crucial to approach severance negotiations with careful consideration rather than rushing into decisions.

Step-by-Step Playbook to Negotiate Severance

1. Take your time: Most companies give you at least a few days (and sometimes up to 21 days) to review a severance agreement. Use this time wisely.

2. Research industry standards: Knowing what's typical for your industry, position, and tenure gives you negotiating leverage.

3. Identify your priorities: Whether it's more cash, extended benefits, or better references, know what matters most to you.

4. Prepare your counteroffer: Based on your research and priorities, develop a specific request.

5. Leverage your value: Highlight your contributions and the institutional knowledge you possess.

6. Consider offering something in return: Such as:

   • Training your replacement
   • Consulting availability after departure
   • Stronger non-disclosure or non-compete terms

7. Get it in writing: Ensure all agreed terms are documented in the final severance agreement.

As one example from our practice in Jackson, Mississippi, we helped a client increase their severance from 4 weeks to 12 weeks of pay by highlighting their specialized knowledge and offering limited post-employment consultation.

Key Documents to Review

Before signing a severance agreement, carefully review these elements:

1. Release of Claims: Most severance agreements require you to waive your right to sue the employer for certain claims. Understand exactly what rights you're giving up.

2. Non-Compete Clauses: These may limit where and how you can work next. In Mississippi, reasonable non-compete agreements are generally enforceable, making it especially important to understand their scope.

3. Non-Solicitation Provisions: These may restrict your ability to contact former clients or colleagues.

4. Confidentiality Requirements: These dictate what information you can and cannot share about your employment and separation.

5. References and Announcements: How will the company characterize your departure to others?

6. Return of Property: Requirements for returning company equipment, documents, etc.

7. Ongoing Obligations: Any continuing duties after employment ends.

At Watson & Norris, PLLC, we've found that many employees across Mississippi sign severance agreements without fully understanding these provisions, potentially limiting their future opportunities unnecessarily.

Understanding Your Initial Employment Paperwork: What to Look For and How to Protect Your Rights

More information about severance and non-compete agreements

Frequently Asked Questions About Severance

What is the difference between severance pay and regular wages?

When we define severance pay versus regular wages, the distinctions go beyond simple terminology. Think of regular wages as payment for work you've already completed—the hours you've invested in your job. Severance, on the other hand, represents compensation for the ending of your employment relationship.

Your regular paycheck is something your employer legally must provide for every hour worked. It's non-negotiable. Severance, however, typically falls into the "nice to have" category—something companies offer voluntarily (except when contracts or specific circumstances make it mandatory).

The payment structure differs too. While your regular salary arrives in predictable intervals, severance might land in your bank account all at once or continue as regular payments over time. Both types of compensation will take a bite out of your wallet come tax season, though they might appear differently on your tax forms and face different withholding rates.

I recently worked with a client in Hattiesburg who finded her employer was trying to pass off unpaid overtime as part of what they called a "generous severance package." We helped her untangle these distinct entitlements, securing both her legally required back wages and appropriate severance compensation.

Can I collect unemployment while receiving severance?

The answer isn't black and white—it's more of a "it depends" situation based on several key factors:

Your state's unemployment rules play a major role, as different states have developed different approaches to how severance affects benefit eligibility. The structure of your severance payment matters too—a lump sum might be treated quite differently than ongoing salary continuation. Even the timing of payments can influence your benefits, as some states only count severance against unemployment during specific weeks.

Here in Mississippi, your severance package can indeed impact your unemployment benefits, especially if it's structured as continued salary rather than a one-time payment. This is precisely why the details of your severance agreement deserve careful attention.

Our team has helped clients throughout Mississippi—from Biloxi to Tupelo—structure their severance agreements to minimize negative impacts on their unemployment benefits eligibility. With the right approach, you can often maximize your total compensation during your transition period.

Is severance always negotiable?

While nearly every severance offer has room for improvement, your negotiating power depends on several important factors. Some companies operate with rigid, standardized severance formulas that leave little wiggle room. The circumstances of your departure matter too—individual terminations often offer more flexibility than large-scale layoffs where companies are cutting dozens or hundreds of positions.

Your position and tenure significantly impact your leverage. Senior executives and employees with lengthy service records typically command more negotiating power than newer or junior staff members. If your employment contract already specifies severance terms, these may either limit your options or provide a solid foundation for negotiation.

Potential legal claims can also strengthen your position. If you have grounds for a discrimination or wrongful termination claim, this may provide additional leverage in severance discussions.

In our experience representing employees across Mississippi—from Gulfport to Oxford to Jackson—even seemingly "standard" severance packages often have untapped potential. We've successfully negotiated improved terms for clients at all organizational levels, from entry-level positions to C-suite executives. The key is knowing what's reasonable to ask for and understanding how to frame your requests effectively.

Your employer's first offer is rarely their best offer. With the right approach and knowledgeable guidance, you can often secure more favorable terms that better support your transition to the next chapter of your career.

Conclusion

When we define severance, we're talking about much more than just a final paycheck. A severance package represents the bridge between chapters in your career journey and can make a world of difference in your financial stability during this transition period.

Throughout this guide, we've explored the ins and outs of severance packages – from what they typically include to how they're taxed. Let's take a moment to reflect on the most important points to remember:

Severance pay isn't generally required by federal law, but it might be mandated by your state, your employment contract, or your company's policies. This is why understanding your specific situation is so crucial.

Most companies calculate severance based on your tenure – typically offering 1-2 weeks of pay for each year you've been with them. But this formula varies widely depending on your industry, position, and the circumstances of your departure.

Your severance package likely includes more than just money. Benefits continuation, outplacement services, and handling of unvested equity can sometimes be even more valuable than the cash component, especially if you're facing a lengthy job search.

Severance pay is taxable income and might affect your unemployment benefits eligibility. Planning for these impacts can help you avoid financial surprises down the road.

Perhaps most importantly, that initial severance offer is often just a starting point. Most packages can be negotiated, though your leverage depends on various factors like your position, tenure, and the circumstances of your separation.

Before signing anything, take time to understand all provisions in your severance agreement – especially releases of claims and restrictive covenants that might limit your future opportunities.

At Watson & Norris, PLLC, we've guided countless employees across Mississippi through the complexities of severance negotiations. From Southaven to Meridian, from Vicksburg to the Gulf Coast, we've seen how informed employees often secure significantly better terms than those who accept initial offers without review.

If you're facing job loss and have questions about your severance package, please know that you don't have to steer this challenging time alone. Our team specializes in employment law throughout Mississippi and can provide the guidance you need to ensure your rights are protected.

Learn more about our services for severance and non-compete agreements

The definition of a fair severance package isn't determined solely by your employer—it's something you have a voice in shaping. With proper understanding and representation, you can ensure your severance truly serves its purpose: providing appropriate support as you close one door and prepare to open another in your career journey.